NCMA Restricted Reserve Fund
`
NCMA Restricted Reserve Fund
INVESTMENT POLICY STATEMENT
This investment policy statement was adopted by the
NCMA Asset Management Committee.
Date: April 21, 2007
1
NCMA Restricted Reserve Fund
TABLE OF CONTENTS
I Summary Data
II Purpose
III Statement of Objective
IV Access Policy
V Duties and Responsibilities
VI Investment Policy and Guidelines
VII Guidelines for Portfolio Holdings
VIII Control Procedures:
2
NCMA Restricted Reserve Fund
I – SUMMARY DATA
Fund Name:
Investment Time Horizon:
Risk Tolerance:
Portfolio Type:
Trustee:
Custodian:
Investment Advisor:
Fund Administrator:
NCMA Restricted Reserve Fund
5-10 Years
Moderate
Moderate Growth and Income
NCMA Asset Management Committee
Wachovia Trust
Wachovia Charitable Services
W. Todd Ripley, CTFA
II - PURPOSE
This document establishes the Investment Policy Statement for the NCMA Restricted
Reserve Fund and is designed to assist in effectively supervising, monitoring, and
evaluating the investment of the Moderate Growth & Income portfolio assets. A thorough
investment program is defined throughout this document to achieve the following:
Document NCMA Restricted Reserve Fund's investment objectives, performance
expectations, and investment guidelines for Fund assets.
Establish an appropriate investment strategy for managing all Fund assets, including an
investment time horizon, risk tolerance ranges and asset allocation. The goal of this
strategy is to provide sufficient diversification and overall return over the long-term time
horizon of the Fund.
Establish investment guidelines to control overall risk and liquidity, within the agreed upon
investment strategy.
Establish periodic performance reporting requirements that will effectively monitor
investment results and ensure that the investment policy is being followed.
Comply with fiduciary, prudence, due diligence, and legal requirements for Fund assets.
NCMA Asset Management Committee has arrived at this Investment Policy through
careful study of the returns and risks associated with alternative investment strategies in
relation to the current and projected access policies and fund raising requirements of the
Fund. This policy has been chosen as the most appropriate policy for achieving the
objectives of the Fund, which are described in the Objectives section of this document.
III - STATEMENT OF OBJECTIVE
The objective of the NCMA Restricted Account shall be defined as:
To preserve and enhance the purchasing and earning value of the funds held in the NCMA
Restricted Reserve Fund .
To seek an average annual real rate of return of 2.0%, or total return of CPI plus
2.0%. This objective shall be measured over 5-10 year time frame, with the intent of this
objective to preserve, over time, the principal value of the assets as measured in real,
inflation adjusted terms.
To seek competitive investment performance versus appropriate or relative benchmarks.
This objective shall be measured primarily by comparing investment results, over 5-10
year time period.
IV - ACCESS POLICY
The Access Policy for the NCMA Restricted Account as set forth by NCMA Asset
Management Committee shall be as follows: This account is designated as a "Restricted
Reserve Account" which has been established to protect the organization from unforeseen
financial circumstances or hardship as determined by the Board of Directors.
NCMA Restricted Reserve Fund
It shall be the responsibility of NCMA Asset Management Committee to periodically
review the access policy to make adjustments necessary to preserve the purchasing power
of the NCMA Restricted Account. Further, it shall be the responsibility of NCMA Asset
Management Committee to promptly communicate any changes in the spending policy to
the Investment Advisor.
It is the policy of NCMA that access to the Restricted Reserve Fund account(s) shall be
accompanied by a duly executed NCMA Board of Directors corporate resolution bearing
the signatures of the NCMA National President and the Executive Director. Board of
Directors approval shall be supported by a letter of justification prepared by the NCMA
National President/ Executive Director that has been coordinated with the NCMA NVP &
Treasurer and the Chair of the NCMA Asset Management Committee prior to Board
action. The letter of justification shall provide a detailed business case to support the use of
restricted reserve funds. The NCMA CFO shall retain a copy of all documentation to
support the audit trail for use of NCMA restricted reserve funds for a long enough period
of time to support any audits or financial reviews.
V - DUTIES AND RESPONSIBILITIES
NCMA Asset Management Committee is responsible for managing the investment process
in a prudent manner with regard to preserving principal while providing reasonable returns.
In carrying out these duties, the NCMA Asset Management Committee has retained an
Investment Advisor, Wachovia Trust, to assist in managing the assets of the Fund. The
Investment Advisor's role is to provide guidance to the Committee on matters pertaining to
the investment of Fund assets including investment policy, investment selection,
monitoring Fund performance and compliance with the Investment Policy. All decisions
pertaining to the investment policy and guidelines for the policy's implementation shall be
implemented by NCMA Asset Management Committee as approved by the NCMA Board
of Directors.
NCMA Asset Management Committee:
Retain a qualified Investment Advisor to assist in the development and implementation of
the investment policy, (e.g., goals, objectives, and guidelines).
Establish the investment policy of the Fund. This includes, but is not limited to, allocation
between equity and fixed income assets, selection of acceptable asset classes and
investment performance expectations.
4
NCMA Restricted Reserve Fund
Investment Advisor
Regularly review investment performance of the Fund to assure the policy is being
followed and progress is being made toward achieving objectives.
Assist the NCMA Asset Management Committee in establishing the investment policy and
guidelines contained in this Investment Policy Statement.
Determine an investment strategy and coordinate the asset allocations
through the investment provider of the mutual funds. This strategy shall be within
investment policy guidelines as set forth in this statement, and as otherwise provided by the
NCMA Asset Management Committee.
Monitor asset allocation among all asset classes and verify on a quarterly basis to the
NCMA Executive Director that allocations are within targets defined by this investment
policy statement and approved by the NCMA Asset Management Committee.
Monitor the investment performance of the Funds and provide quarterly and yearly, as
mutually agreed upon, performance advisory reports to the NCMA Asset Management
Committee.
Report in a timely manner to the NCMA Executive Director substantive developments that
may affect the management of Fund assets.
Brief the Finance and Budget Committee and the Board of Directors once every year at the
first meeting of the new Program Year (traditionally the July meeting).
Any additional briefings should be coordinated among the AMC, CFO, ED and President
on an as-needed basis.
VI - INVESTMENT POLICY AND GUIDELINES
The Portfolio
Fund assets will be held in an investment portfolio with an active strategic asset allocation
strategy. This portfolio will be invested exclusively in mutual funds. As a result, assets
held in this portfolio will be well diversified and highly liquid.
The investment adviser for the portfolio is responsible for managing the
assets of each fund in accordance with the stated objectives and policies of that fund as set
forth in each prospectus. The NCMA Asset Management Committee should read this
information carefully before investing.
Investment Level Targets
The aggregate target amount of NCMA reserve fund assets (both Restricted and
Unrestricted) should be 40% of any given year’s Operating Budget. The target amount for
Unrestricted Reserve Funds shall be 10% of the aggregate reserve funds. For example, if
aggregate reserve funds are $2 million, then unrestricted should be $200,000.
Fund Replenishment
Replenishment plans should be developed any time $10,000 or more is withdrawn from the
NCMA Restricted Fund.
Time Horizon
Fund objectives are based on 5-10 year, investment horizon, so that interim fluctuations
should be viewed with the appropriate perspective. The NCMA Restricted Reserve Fund
has adopted this investment horizon such that the chances and duration of investment
losses are carefully weighed against the potential for appreciation of assets.
5
NCMA Restricted Reserve Fund
Diversification
Investments shall be diversified with the intent to minimize the risk of large losses to the
Fund. Consequently, the total portfolio will be constructed and maintained to provide
prudent diversification with regard to the concentration of holdings in individual issues,
corporations, or industries. Diversification occurs at several levels. NCMA Asset
Management Committee realizes a significant portion of the mutual funds comprising the
Portfolio is allocated to U.S. equity securities, including allocations to both large and small
cap equities. Moderate exposure to developed international equity may be permitted.
Mutual funds comprising the fixed income portion of the Portfolio are allocated to
predominately high quality U.S. bonds. Moderate exposure to developed international and
high yield bonds may be permitted. Financial research has demonstrated that price
volatility can be further reduced by lengthening the investment time horizon.
The portfolio is managed in accordance with the diversification and industry concentration
restrictions set forth in the Investment Company Act of 1940, as amended (the "1940
Act"). Pursuant to the provisions of the 1940 Act, diversified mutual funds may not, with
respect to 75% of their assets, (i) purchase securities of any issuer (except securities issued
or guaranteed by the United States Government, its agencies or instrumentalities) if, as a
result, more than 5% of its total assets would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any one issuer. Certain
mutual funds in which the Fund may be invested are considered non-diversified for 1940
Act purposes. These non-diversified funds are not required to follow this procedure.
In addition, no mutual fund may purchase any securities which would cause more than
25% of its total assets to be invested in the securities of one or more issuers conducting
their principal business activities in the same industry, provided that this limitation does
not apply to investments in securities issued or guaranteed by the United States
Government, its agencies or instrumentalities.
6
NCMA Restricted Reserve Fund
Asset Allocation
Academic research indicates that the decision to allocate total account assets among
various asset classes will far outweigh security selection and other decisions that impact
portfolio performance.
The NCMA Asset Management Committee believes that to achieve the greatest likelihood
of meeting fund objectives and the best balance between risk and return for optimal
diversification, the Fund should allocate assets in accordance with the targets for each asset
class as stated below:
Portfolio: Moderate Growth & Income
Portfolio Objective: Balanced Growth & Income
Asset Classes
Normal Weightings
Fixed Income - U.S.
59%
Equity - U.S.
40%
Cash
1%
Asset Allocation
Limitations:
Sector
Target Range
Domestic Large-Cap
Equity
Mid-Cap Equity
Small-Cap Equity
International Equity
Fixed Income
Cash Equivalent
20% -- 30%
Strategic
Target
28%
5% – 12.5%
5% – 12.5%
5% – 15%
20% – 40%
1% – 5%
10%
8%
14%
38%
2%
Rebalancing Procedures
From time-to-time, market conditions may cause the Portfolio's investment in various
mutual funds to vary from the established allocation. To remain consistent with the asset
allocation guidelines established by this Statement, each mutual fund in which the Portfolio
invests will be reviewed on a monthly basis at minimum and rebalanced back to the normal
weighting if the actual weighting varies by 2% or more from the recommended weighting.
In addition, the allocation of assets in the Portfolio may deviate from the normal allocation
within the permitted range when market conditions warrant. Such deviations are designed
primarily to reduce overall investment risk in the long term.
The NCMA Asset Management Committee recognizes that rebalancing is inherent to the
element of diversification, where the goal is to create a portfolio that balances the
appropriate levels of risk and return. That balance, once achieved, only can be maintained
by periodically rebalancing to the preferred asset allocation guidelines. Policy will mandate
annual rebalancing (minimum), though the Committee reserves the right to review
quarterly as deemed prudent. In addition, the investment advisor will by policy seek to
rebalance to strategic asset allocation guidelines when notified of any distributions or
contributions.
Risk Tolerances
The NCMA Asset Management Committee recognizes that the objectives of the Portfolio
cannot be achieved without incurring a certain amount of principal volatility. The Portfolio
will be managed in a style-neutral manner that seeks to minimize principal fluctuations
7
NCMA Restricted Reserve Fund
over the established time horizon and that is consistent with the Portfolio's stated
objectives.
The risk tolerances have been determined by polling the NCMA Board of Directors. The
risk tolerances shall be reassessed every three years in the same manner.
Performance Expectations
Over the long-term, the investment objectives for this portfolio shall be to achieve an
average total annual rate of return, which consists of the Consumer Price Index (CPI) plus
2.0% for the aggregate investments under this Investment Policy Statement. Returns may
vary significantly from this target year to year.
8
NCMA Restricted Reserve Fund
VII - GUIDELINES FOR PORTFOLIO HOLDINGS
As described in the Investment Advisory Agreement, the Investment Advisor implements
this Investment Policy through investments in mutual funds and other pooled asset
portfolios. Such investments are acceptable investments provided they conform to the
diversification restrictions set forth below.
Domestic Equity
The Domestic Equity asset class may be comprised of mutual funds and other pooled asset
portfolios that are invested principally in equity securities of U.S. companies. These
securities may be listed on registered exchanges, or actively traded in the over-the-counter
market, or considered to be restricted securities (provided that the percentage of the fund's
assets invested in such securities
conform to the Fund's prospectus).
Domestic Fixed Income
The Domestic Fixed Income asset class may be comprised of mutual funds and other
pooled asset portfolios that are invested principally in fixed income securities that are rated
investment grade or better, i.e., rated in one of the four highest rating categories by an
NRSRO at the time of purchase, or if not rated, are determined to be of comparable quality
by the Investment Advisor or a mutual fund sub-Advisor.
Cash Equivalent Reserves
Cash equivalent reserves shall consist of money market mutual funds that comply with
Rule 2a-7 under the 1940 Act.
9
NCMA Restricted Reserve Fund
VIII - CONTROL PROCEDURES
Review of Liabilities
The NCMA Asset Management Committee will review all policies, objectives and guidelines
annually. This review will focus on an analysis of major differences between the Fund's
assumptions and actual experience.
Review of Investment Objectives
Investment performance will be reviewed annually by the Investment Advisor to determine the
continued feasibility of achieving the investment objectives and the appropriateness of the
investment policy for achieving these objectives. In addition, the validity of the stated objective
will be reviewed annually. It is not expected that the investment policy will change frequently. In
particular, short-term changes in the financial markets should not require an adjustment in the
investment policy.
Review of Investment Advisor
The Investment Advisor will report on a quarterly basis to review the total Fund investment
performance. In addition, the Investment Advisor will be responsible for keeping NCMA advised
of any material change to access policy, investment strategy, or other pertinent information
potentially affecting performance of all investments.
Review of Investment Performance
Manager performance will be evaluated in terms of an appropriate market index (e.g. the S&P
500 stock index for large-cap domestic equity manager) and the relevant peer group (e.g. the
large-cap growth mutual fund universe for a large-cap growth mutual fund), as more particularly
set forth in the following table.
Asset Class
Large-Cap Equity
Blend
Growth
Value
Mid-Cap Equity
Small-Cap Equity
International Equity
Fixed Income
Intermediate-term
Bond
Money Market
Index
Peer Group
S&P 500
Russell 1000 Growth
Russell 1000 Value
Russell Mid Cap
Russell 2000
MSCI EAFE
Large-Cap Blend
Large-Cap Growth
Large-Cap Value
Mid-Cap Blend
Small-Cap Blend
Foreign Stock
Lehman Brothers Gov’t/Credit
Intermediate
90 day T-Bills
Intermediate-Term
Bond
Money Market
Database
Proxy Statements
Proxy statements will be voted in accordance with the terms of the Investment Advisory
Agreement.
Investment Advisor & Fund Manager(s)
The Investment Advisor serves at the pleasure of the NCMA Asset Management Committee and
Executive Director. NCMA may at any time direct the Investment Advisor on the means and
methods of all investment instruments and instrumentalities in accordance with applicable laws
and rules and regulations as well as policies set forth herein
10
NCMA Restricted Reserve Fund
ADOPTION OF INVESTMENT POLICY STATEMENT
The NCMA Asset Management Committee has reviewed, approved, and
adopted this Investment Policy Statement, dated April 21, 2007.
NCMA Executive Director
Date
Wachovia Trust Charitable Services Group
Date
11
11